Thursday, June 19, 2008

The Party of the Hard-Working Class?

Morality is the most under-used weapon in the armoury of a small-government Conservative. Economy-boosting tax relief doesn't have to be "tax cuts for the rich". The Tories' next moral target should be the taxation of low-income workers. Income tax is taken from many poor families, churned through an expensive bureaucracy and then returned in benefits.

It would cost £44 billion to take approximately 14,000,000 people out of the tax system altogether. The Conservative government doesn't have to set a timetable, but it would be the greatest of missions; as radical and just as Margaret Thatcher's sale of council homes. It would sow panic in Labour's heartlands.

The difference between freezing public spending and growing public spending at the same rate as Labour is £12 billion a year. Conservatives could complete the mission within one parliament if they froze spending - after inflation. They could hit the target within a decade if spending was simply put on a more sensible growth path and some of the savings also used to finance lower corporate taxation. Conservatives would be reducing bureaucracy, rewarding work and freeing millions from the complexity of the means-tested benefits jungle.

Labour's heartlands are already restless. The 10p tax fiasco showed that Brown was willing to put politics before the interests of his party's traditional voters. The Tories shouldn't assume he will continue to shoot himself in the foot. Conservatives should seize the moment and aim to become the party of the hard-working class.

I have a lot of sympathy with much of this, although I question the desirability of taking 14 million people out of the tax system. I certainly think that should happen to the poorest in society, but there is a good argument that says you don't appreciate what you don't pay for.

89 comments:

PSJ
said...

If we take the poorest out of income tax, they will have no incentive to support further income tax cuts, and indeed may be tempted to support income tax increases because no government would be stupid enough to put them in income tax again. So while I think we should reduce their income tax burden, as we should reduce everybody's, I don't think we should eliminate it entirely.

If you raise the basic rate income tax threshold to, say £12000, everybody who earns above that figures gains more than everyone who earns below it.

In other words, the gap between wealthy and poor widens.

Freezing public spending can only mean zero pay increases across the puiblic sector. in other words, real terms pay cuts for doctors, nurses, teachers, police.

Not a vote winner.

The 10p tax rate benefitted everyone above the threshold more than everyone below it as well. It was a blunt instrument.

Labour's approach to lowering taxes for the poorest involves much bureaucracy, for sure, but the effect of targeting reliefs on the poorest by means of tax credits, is that the poorest benefit more than the wealthiest, not less.

There is of course a happy medium - which is to have a very low tax rate for a wide initial band. The hard working low earners will pay tax - but not much. They would however be very sensitive to increases in the rate.

If Osborne put a 5% rate on all income earned between the personal allowance and - say - £12,000, this would hugely incentivise the target group.

All of this discussion is predicated upon not means testing for benefits and eliminating the current near 100% marginal rate for those who work harder and then see all of their gains lost as reduced benefit.

Slaying the benfits monster is just as important as sorting out the tax regime.

Why would freezing spending mean no pay increases ? Are you saying that the government is spending every pound it gets from us wisely ? That there is no waste, that it is not involved in things which it shouldn't ?

I don't know, just of the top of my head, NHS supercomputer, ID cards, etc...

There is a very large scope for reducing the size of the state, especially for a small governement party (not that I think they are quite there yet). But seeing the reaction after the inheritance tax announcement, I bet that people are starting to have enough to see half their money going up in smoke.

Arguing that the benefit system is a good idea when it consumes vast amounts just to administer (with the success we know !) reminds me of the argument against suppressing the road tax in France: what are we to do with the people who administer it.

I think one forgets that the benefits system as it is, actually imposes very high marginal rates of taxation which create the poverty trap.

How about being able and expected to work to better yourself ?

I think the tory party needs to rethink in much larger terms than just taxes.

Absolutely agree. Why on earth can we not have a simple Tory manifesto commitment now to raise the tax free personal allowance to £10,000 per person. With the allowance transferable between couples so a family with the woman (or man) staying at home to look after kids able to earn £20k tax free.

This would strengthen the 'family' as a core economic and social unit and give hard working low amd middle income earning families a much needed non-inflationary pay rise. Adds a big inceentive to go out and get a job too for people trapped on benefits.

A simple way to pay for it would be to cut the CGT £9k tax free allowance, EIS schemes, PEP/ISA tax free allowances and all the other little private equity dodges that only the well off can actually access. Halve the number of quangoes and shut down the DTI and pretty much we would be there.

Massively popular with Mondeo man and Billericky man and totally economically sensible too.

I certainly think that should happen to the poorest in society, but there is a good argument that says you don't appreciate what you don't pay for.

So we should cut taxes a lot more and let people pay for what they want.Take as many out of tax as possible, then government won't need to support their welfare will it? It won't be stealing their money.

On a similar subject, can anyone tell me what the overall "contingency reserve" is for this government? I read somewhere that it stands a little under £60 BILLION? Do you know if this is true? if it is it's huge and knowing how Budget Holders work, it will ALWAYS be used

I am highly nervous of the principle of progressive taxation which at whatever level it is set has bad consequeces and moves marginal disincentives directly into the Conservative heartland.Income redistribution is the same thing by tax or benfits So ,I am not sure how well thought through Tim`s plan is However it was a terrific article , quite right about the pivotal place of the IHT tax payers revolt and the possibilites ahead which must not be passed up.

***The difference between freezing public spending and growing public spending at the same rate as Labour is £12 billion a year. Conservatives could complete the mission within one parliament if they froze spending - after inflation.***

£12 billion a year, most of which the current government is borrowing (the black hole in Labour's policies which never gets mentioned).

So, if a future Tory government wanted to use this £12 billion a year, they wouldn't be stopping extra spending and just using the spare cash to cut income tax for the poor. They'd still have to borrow billions but they'd funnel it into income tax cuts rather than spending increases.

I'm all for cutting income tax but to fund it by borrowing seems insane. Buy-to-let applied to the PSBR.

All tax cuts are 'unfunded' in the sense that governemnt's just spend our money. If Governemnt spending is cut - which it needs to be - then no tax is required. Unfunded tax cuts is a nonsense phrase.

Lifting the income tax threshold to say £12000 and introducing a flat tax does not make higher earners better off. They still pay the same percentage of their incomes as tax. I've done some spreadsheets to test this. Yes they keep more cash than low earners but the proportion they pay is still the same. And in any event why should high earners (of which I am NOT one) pay proportionally more tax than low earners. I can find no reasonable argument for this other then envy and the 'your rich because I am poor' nonsense argument.

Leaving low earners in NI tax is correct. The biggest 'cost' is health and pensions. Hence low earners would still be paying for the benefits . It's actually compulsory insurance. Education is funded from general taxation. If we introduce a system of education credits to pay for education, that is the money follows the student, rather than the institution, the low paid will see that the rest of society feels that education is important. They will be in charge of their own education spend and will be able to exercise discretion as to how best to spend. They will be encouraged to discriminate. They will be empowered.

Confiscating peoples income and recylcing it into benefits does nothing for self reliance and self respect.

My view is that we have beaten socialsium/communism now we have got to beat bureaucratism. It's the next big problem. The economy is unbalanced and the state sector is bloated. As the recessionary forces bite unemployment will have rise as market forces to seek to re-allocate resources to more efficient production. As much of the wealth creating sector has already worked on being lean and mean unemployment will have to come from the bureaucracies of the State.

This is going to be a desparate challenge as these bureaucracies will fight by seeking to lose front line jobs first.

I don't know, just of the top of my head, NHS supercomputer, ID cards, etc...

The major cost in those projects derives from the wages of the people involved. OK, fine, say you fire them and use the money to increase pay.

Say the unions buy the idea that they won't need so much of a pay rise because they're getting a tax cut.

Given that ( I don't agree there's as much waste as you think, but I'll give you it for the sake of argument), how do you put £44bn more money into the economy without interest rates going through the roof as inflation soars? And money-supply driven inflation is the nasty sort - beats cost-push into a cocked hat every time.

Before long we'd be back to 20% inflation, 15% interest rates, unemployment and recession.

As it is, Osborne wants to cut taxes during periods of growth and raise them during slow-downs. Don't make it even worse than it's going to be with those boom-bust tactics!

Say the threshold is £5000. You get taxed on everything above £5000 and everryone on less than that pays £0.

If you raise the threshold to £10000, the tax bill for everyone below £10000 is reduced by amounts varying from £1 (for those who earn £5004) to £1000 for those who earn £10000 and above.

So, If you earn £1m a year, you get a tax cut of £1000, and if you earn £9996 you get a reduction of 999, tapering down to a zero reduction for those on £5000 or less.

The same goes for IHT, where raising the threshold to £1m (or £2m if you have a good accountant) benefits everyone above that threshold more than everyone below it. Same with the proposed raising of SDLT threshold to £250k - a £2500 tax break to everyo0ne whose first home is worth more than £250k, tapering down to a zero tax break for those who can only afford a new home at or below the current £150k threshold.

Montgomerie has lost it completely. Just who are the 'Hard-working Class'?

Ask anyone whether they are 'hard-working' and they will say yes. After all, is it really in their interests to say otherwise? Why even MPs allege that they are 'hard-working' - and some of them are 'Labour' members.

Iain, the low paid will not be taken out of tax altogether, just income tax. This is a good idea as it rewards the many around here who go out and work for low wages, whilst paying tax to support those who don't work. this is similar to GBs ridiculous means testing, only simpler, more efficient and more broadly targeted.

I would suggest progressively raising the lower tax allowance until anyone earning the minimum wage, whilst working full time, isn't paying income tax.

Without the tax credit system, Canvas, we would certainly have the wealth-gap widening policies that you are seeming to approve.

Means tested tax credits don't help the wealthy because they don't qualify. They help the poorest - that's why they are there.

We need to start where we are, not with a blank sheet. The debate is about how to REDUCE taxes or "re-balance" the tax system. By trying to start with a blank sheet, you're wide open to the accusations that you're targetting the cuts on the wealthy with an implied cost to the poor.

Ok Iain, perhaps calling you a 'part-time conservative' was a little harsh (but fair were I from the ideology police).

But, communising the meagre wealth of the poorest to compel them to pay for government 'services' results in guess what?... more government. Inspecting, regulating and surveilling innocent and harmless pleasures of the 'customers'.

That which no one owns, no one cares for. There is an argument for taxing the population to pay for governmnent sevices, but it's not a good one.

Surely the fairest tax is not on what money you earn, but on what you spend.

Should the torys not consider reducing income tax, increasing everyone's allowance and increasing VAT?

This takes many of the poorest out of the tax system, increases the incentives to work. Not only that it gives the Government a large scope to Have different levels of VAT on certain products, such as 'green products'.

***So, If you earn £1m a year, you get a tax cut of £1000, and if you earn £9996 you get a reduction of 999, tapering down to a zero reduction for those on £5000 or less.***

John, I'm just off for a lie down and a cold compress on my forehead. That's what I get for only getting a C at Maths O'Level (on the 2nd attempt).

Yes, if the current lower limit for income tax is, say, £5K, then raising it to £10K doesn't help people earning below £5K at all.

But surely those people had already been helped when the lower limit was originally set at £5K. Raising the lower limit to £10K would be expressly for the purpose of helping people who earn between £5001 and £9999.

Yes, those people may better off than those below £5K but only in the sense that a one-eyed man is better off than a blind man. They could still do with a bit of help.

One could equally argue against setting the lower limit at £5K on the grounds that it doesn't help people with zero income (presumably those sleeping rough on the streets) or people blogging between the hours of 9 and 5 on a weekday.

Doesn't it make more sense, if you are trying to help poor people, to get rid of VAT and make up the difference in income tax? The poorer you are the higher proportion of your income you spend on food, petrol, alcohol, cigarettes etc.

john, I think the very wealthy should NOT get tax breaks. I think the very wealthy are not pulling their weight and should pay more tax.

The problem with all this means testing, and the tax credit and benefit system is that it confuses people, it's complicated and costly, not everyone who is entitled claims, it undignified. It makes sense to just take to low paid out of income tax altogether.

Gordon Brown and his government just try to confuse people and they complicate just everything!

Why keep the low paid as 'slaves to the state' when the obvious solution is to remove low earners from income tax altogether?

People in general have as poor a grasp of progressive taxation as football commentators have of the Offside Law. Like the Lisbon Treaty, who would approve of something they can't get their head around?

Zeddy (nice bike joke!) we're talking about the degree of "help" that can be delivered through tax reform. Your idea is to deliver most help to the topmost earners, and less and less help until you get to the bottom.

My main point (and I respect your position on wanting to waste less - you're clearly not bonkers) is that you are arguing "how, what and how much should we tax", whereas the debate is really "how, what and how much should we REDUCE tax".

You are starting from a blank sheet, but we live in the reality.

Abolishing tax credits will make the poorest worse off NOW and the wealthiest better off now.

As these posts indicate the debate is not about income tax alone - it is about all tax.

Someone once said that taxation is the price of living in a civilised society. And broadly I agree with this. We are all happy to pay taxes to ensure that we have law, are safe from attack from foreign powers, can enjoy private property rights, have a stable currency, reasonable infrastructure and so on. There is also a consensus that everyone should be able to access good health care which is free at the point of delivery. And we also agree that education should be funded from taxation as this benefits both those who value it - the middle classes - and those who will benefit from it. It is also known that education is the best way out of ‘poverty’ (however it is measured).

So taxation is required.

The debate now is on two things. One, how much of the services we require should the state provide, and two of those that it does provide how can they be done most efficiently.

I’ll just state my position at outset. I abhor income tax. It is, when dressed up as PAYE, simply a tax on employment and however you look at it, it is a massive disincentive to gainful employment. I also abhor benefits as they encourage dependency. I accept that some income tax will be levied and I accept that some benefits should be paid. And for the latter case this requires us to define poverty. Well I do not accept relative poverty as a definition. I only accept absolute poverty. And broadly this means food clothing shelter and heat and light (not forgetting that the poor are getting education and healthcare FOC – or rather paid for from tax paid by others).

The next question to ask is whether, if all that is currently being done by the State could be done for 10% of GDP (rather than 40% to 50% as now) why wouldn’t it? In other words does the State have a duty to minimise or maximise tax? Of course for a lefty government with a redistributive tendency maximising tax is good because it justifies taking money away from one lot of citizens and giving it to another lot. Implied in this is the thinking that I am poor because you are rich. Or that somehow it is ‘unfair’ that I am poor and you are rich. Or the other way about. And of course ‘fairness’ itself is a subjective judgement. (For example as I am not as good looking nor as clever as Harriet Harman she should be lobotomised and have a bottle smashed in her face – there now, that’s fair, she is now the same as me).

Then there is the tendency for politicos to want to more and more ensure that they have a job. All on someone else’s money. Is this really going to be anything but an irresistible temptation?

So you will have probably gathered by now that I want a very low tax society with low benefits in which my responsibility (not your rights) ensures that I pay enough tax to ensure that you (if you are poorer than me – difficult but not quite impossible just yet) can have shelter, food, heat light clothes health care and education however unlucky or feckless you are. But you will be expected to work hard to get off benefits.

Taxation, especially income tax plays a big part in this ability to escape. Flat income tax starting at about £12,000 p.a. at a rate of about 20% with the intention of reducing it to 10% over time is my preferred option. Yes the ‘rich’ will keep more cash then the ‘poor’ but they will pay proportionally the same or more than those on no tax. But as I said at outset this is about all tax – and tax allowances. I abhor all the various allowances, ISA’s, EIS etc and all that stuff. And they should all go. (I bet you can see where we are headed with this?). Once we have hugely simplified the tax system we can lay off loads of taxmen and allow them to seek more value adding employment elsewhere. And it goes on. What about local property taxes? Quite we are taxed on a capital asset and made to pay the charge from cashflow escapes me. It escapes me why we pay property taxes anyway. Scrap council tax and introduce a local sales tax which will replace VAT.

Now then, benefits. Just stop it. Actually I am getting bored now. But you get the drift. Move to a low tax low benefit low State interference society and we will all be better off.

As regards the ability of the State to spend money efficiently, well? Really? Governments of all hues have demonstrated time and again that they are the most consistently useless allocators of capital. Another incentive for small government.

And to prove this look at G Brown. Essentially he has taxed and spent capital for 11 years and all that he has done is impoverish everyone, especially the poor. Spending capital is the absolutely certain way to penury.

***Zeddy (nice bike joke!) we're talking about the degree of "help" that can be delivered through tax reform. Your idea is to deliver most help to the topmost earners, and less and less help until you get to the bottom.***

I’d hardly describe people earning between £5001 and £9999 as the “topmost earners”.

***Someone once said that taxation is the price of living in a civilised society.***

It was Sherlock Holmes. Or am I thinking of Oliver Wendell? Not that it matters, you couldn't fit a cigarette paper between the two of them on economic theory.

You lost me somewhere. Where do you get that one would put £44bn in the economy, and where do they come from ? Are you talking about the money the government would not take from us ? Isn't is part of the economy already ?

As for people losing their jobs, those big projects channel our taxes into large companies coffers, for thigs that are not needed. Instead, I suppose those large companies would have to supply us with goods and services directly. Why would that be bad for us ? Not so good for some people I agree, but why would I have to support people who really are unproductive and add nothing apart from extra costs ? And probably not so good for those companies because they would have to work more efficiently to earn the same.

The problem is that we start from the existing system, and the thinking by the tories seems to be timid and certainly not original. As I said, seeing the reaction to the death tax proposals, I think the country is ripe for more bold moves.

ahh Newmania if only you you could see me... I live in Suffolk - renowned only after Norfolk for inbreeding. And why do you think I like the visual anonimity of the blogosphere....'ugly as a crab' is what I read in a book somewhere.

But you are right, I am sorry, I would not ever hit anyone, even such a harridan and Harman, with a bottle. Let's just say we box her ears and poke on the nose a bit. Anyway she's far to frightening to approach too near.

Cameron's appeal to women voters is legendary. Now the Party needs the support of the male sector of society. The required policy slogan is obvious once you hear it, as long as you are male, that is and partial -

Bearing in mind that the less well off are forced to pay indirect taxes anyway, I too think it is good for most people to pay at least some income tax. In fact, I quite like the discontinued 10% starter rate.

A reason Labour has had so much past support is that many voters underestimate how much tax they pay and have the notion that most of the burden is carried by companies and the rich.

Zeddy said :Lola, here's an even quicker way to reduce the need for tax inspectors...stop fiddling your taxes (not you personally).

Now you know very well it's the very complexity of the tax laws that causes the most problems. And if taxes are simple fair and easy to collect people do not fiddle them. Fiddling gets into its stride when taxes become complicated and confiscatory. And what's more although big evaders get the most press the cummulative effect of the black economy (into which we ALL contribute - to quote Noel Coward in the Italian Job " Camp Freddy, everyone in the world is bent") is a bigger tax loss to the treasury. Same basis as that it's the small punters that make money for Las Vegas not the high rollers.

Time and again it has been demonstrated that low tax rates increase tax take. But socialist will insust on 'redistribution' which just results in wealth destruction. As has been amply demonstrated by the current ex chancellor now masquerading as PM.

Big Governemnt and Big Taxes are Bad.

And before you mention it I am aslo not at all happy with the ability of large supranational corporations to dodge taxes. But this is a political failure as our politicians have let themselves be bought off by these businesses. If they really cared they would stop tesco growing by category killing local businesses. Actually this is an argument for localism and smaller goverment. My local market town with successful town center is under threat from a supermarket development and which has been turned down by the local council but will almost certyaonly get through on appeal to central goverment.

So less centralised taxation at a much lower rate. Less local tax but raised locally and spent locally. Less tax inspectors and more local accountabil;ity and oversight.

Anon 3.15 said: Cutting tax by £44bn would "put money into the economy" People would have much more of their oen money to spend. That is in itself inflationary.

No it isn't. They could choose to save it or to pay off debt. or they could spend it wisely and look for bargains. It may be a boost to the economy but it probably would not be inflationary.

Inflation is too much money chasing too few goods. Either loose money supply or supply shortage. It is also a devaluing of currency. (Note: All currencies trend to zero value). F'rinstance I don't think that the oil price rises are actually inflationary in themselves. Whereas taxation increases under nuliebour combined with ludicrously lax control over money supply are. You can see this in the average government services (haha!) inflation 1997 to 2007 of about 9% against low wage(and imported) almost deflation in the real economy. All the extra cash going into government services has bought neglidgeable productivity gains. This is inflation.

People do appreciate more what they pay for but only when they do the paying themselves not when the "benevolent" state extracts money from us and spends it on what it sees fit. Thus, healthcare and education becomes "free" even though we pay for both through the nose, see little improvement and do not really appreciate it. The state raising taxes is not quite the same as people paying for what they want and would thus appreciate.

A simple solution to the problem would be to disband all the QUANGOs as that would save a good hundred billion or so wouldnt it? Would England PLC collapse? I think not.A hundred billion would finance a universal ten% tax rate and would enable a Tory regime to balance the budget within one term!But hey, who cares about England PLC as very soon England PLC will be taken over and renamed the 'autonomous administrative region of La Manche' sounds great eh? its got a certain zing to it I think and very streamlined too! I mean think of all the climate fighting etc we could do by giving up our old fashioned and clunky democracy? Grrrrreat!

But you wouldn't be taking 14 million people out of paying tax.they would just not pay income tax but would still indirectly pay tax when they spend their wages.Such a policy would actually be a boost to the economy, like in Ireland. Also, employers would take on more workers because there would be less paperwork and tax hassles.People should be able to earn ten thousand pounds a year tax free.Just to cover the very basics.

Spot on 100% there is only one sensible way and that is FLAT TAX. Reduction of tax avoidanced, much more money in the economy, and a flat tax is blindingly simple: its jut 10% (or 12% or whatever of EVERYTHING.

The whole UK tax system could be run by about 50 people: no allowances, credits etc etc.

Of course it will never happen as there is always someone to "prove " it does not work... and these people are always accountants as they will have no work to do once flat tax comes in.

Who do you think "got at " Osborne shortluy after he started floating flat tax awhile back?

"I question the desirability of taking 14 million people out of the tax system. I certainly think that should happen to the poorest in society, but there is a good argument that says you don't appreciate what you don't pay for."

WHY? Until the 1950s, the average working man didn't pay income tax. Excluding the poor from income ax wouldn't mean they were no longer paying and no longer cared- they would still be paying VAT, council tax, alcohol duty, fuel duty, cigarette taxes et etc. They would care.

Taking people out of tax is efficient - it saves on the muppets we pay to recycle the money via tax credits and benefits. It is fair - it puts honest people on the same basis as those participating in the black market. It is moral - it means that the poor and disadvantaged, who currently suffer because they can't complete the complicated forms to claim tax credits, keep the money they earn. It is rational - it moves the tax burden away from labour and towards consumption / pollution etc. It is liberal - it takes the state out of people's lives.

JOhn at 11.35. "Means tested tax credits on't help the wealthy". Oh yes they do. I have a number of incidents of owners of small companies arranging to be remunerated by 'debt' repayment and claiming tax credits. They have bought foreign homes on the strength of it. And I have spoken to a bloke with lots of kids whose effective gross 'earnings' after receipt of tax credits and other benefits was about £54,000 per annum. He actually earned, i.e. was paid by an employer, £19K. The rest was benefits. Do not tell me he was 'poor'. This is madness.

With government accounting being what it is, I wonder if anyone knows what proportion of the benefits paid to the poorest in society from the taxes they pay is against the cost of sdministering this overly complicated and intensely bureaucratic system that only the twisted mind of McSnottie could have conceived.

He still lives in the land of nonsense where all the problems we face are nothing to do with him. Well they aren't are they? He's above all that stuff...

When you use spellings like "Nuliebour" you put yuorself in the barmy camp, but I'll over-look it this time.

Oil and food prices hikes are one sort of inflation, known as "cost-push". This sort of inflation is temporary, IF it doesn't lead to wage inflation to compensate for higher prices in the shops.

Inflation caused by increased amounts of money in people's pockets is the more worrying sort of inflation. A tax cut is inflationary. Leads to higher retail sales (cf May's figures) and subsequent threats of interest rate hikes.

Ironically, a tax hike could be deflationary, as demand is dampened by people having less money, which leads to more stable prices.

Similarly, the "credit crunch" is having the same effect as all those nasty "credit controls" that Thatcher freed us from. We're being more cautious.

The tax burden as a proportion of GDP is falling this year (due to the cuts made by Darling after the 10p fiasco)

In my humble opinion, the time to cut taxes is when the economy is slowing - it means that tighter household finances are helped at the right time.

Osborne's idea is to do the opposite - to share the proceeds of growth. ie , to cut taxes when the economy is expanding.

Like I said earlier, I'd love your ideas to be part of the Tory manifesto, because I'd rather we had a Labour Govt than a Tory one.

I first visited this site just after the Tory poll rtating started to go up in October. I asked loads of times how daring Osborne should be, and no-one was prepared to advocate going much further than the tax breaks for £2m + estates and £250k + first time buyers.

Now you're all getting much bolder, and I think that's a good thing.

I don't think £19k and a houseful of kids is wealthy.

Tax dodgers should be imprisoned and loopholes closed.

If you raise income tax thresholds so much, you reduce the incentives to save for retirement. You've probably got a solution to that, but my main point really is that Cameron isn't going to want to kow because he'd rather be 20 points ahead in the polls than 20 points behind.

Firstly, I am no Tory. To my mind they are just marginally the least worst option.

I agree with a lot of the basic analysis you make but not your interpretation of the likely outcomes.

In regards to saving for pensions the way in which it now works for those earning less than probably 20,000 it is really not worth saving for retirement as all it does is exclude you from benefits. In general people earning at the level of the NAE or less do not save into pensions voluntarily. Most of them just plain cannot afford it. My notional income tax threshold of £12k - at the moment - tries to recognise this as I do still insist that NICO is collected from these earners for health and pension benefits. Taking this class of earner out of tax is sensible. It will make not a jot of differnce to saving or inflation pressures.

Clearly it can be that taxing more can be disinflationary as it reduces spending. At this moment people are in too much debt. We are already seeing people using disposable income to reduce debt. I do not accept that the rise in retail sales for one month is a reliable indicator to inflationary forces.

More worryingly the decade of this regime has not been one that encourages thrift. The governemnt has been profilgate and it has set that bad example to the population, essentially promising them Eden at no cost. Probably to buy their votes. It is now being shown to be a deception, hence my occasional lapse into ire with the Nuliebour.

And poorly managed government spending financed by taxes on capital and borrowing are the most evil of inflationary forces. The figures for the last 11 years demonstrate this.

Personally, having worked in retail financial services for more years than I want to admit I am vastly more confident of the ability of the vast majority of people to look after themselves than I am for any, and I mean any, governemnt to look after them. People are essentially sensible and of good intention with natural compassion and thrift. But thye do need leadership. This they have not had. They have had a circus of Big Brother and X Factor topped off with irresponsibleness form the governemnt and a lack of Faith. Faith that has been supplanted by the Pardon selling of the ecomentalists.

Osborne/Cameron are marketing themselves in the way they are (IMHO) so as not to frighten the horses. This is implied in your argument when you imply that my radical low tax policies would do just that and return another non tory government. (I cannot call them labour as they are not - they abandoned Cl4.4, ripping out the key tenet of Socialism, so quite what they now are I cannot say. Government by Celebrity perhaps?)

Also I was not implying that 19K was wealthy. The point I ws trying to make is that taking money away from one set of slightly wealthier people - hence making them poorer - and giving it to another set of slightly poorer people does not make anyone better off. If at the same time the giving away actually makes the slightly poorer a lot better off than the slightly richer, which then allows the ex slightly poorer to contemplate actions like getting a mortgage based on benefit income it has the effect of fuelling inflation, in this case in house prices. Which then leads to the slightly richer un-benefited being financially stretched and and looking for a pay rise and so on...

Transfer payments when used to 'lift people out of relative poverty' are capable of working in both ways by making the slightly better off poorer and the slightly worse of richer. Hence 'relative poverty' is 'improved'. Once this starts to bite into the slightly better off they have to seek to restore the differentials to continue their lifestyle - or even just basic commitments - they therefore seek wage rises and the inflation spiral gets going again. You can see this happening now in the latent state employee wage demands.

It is also importnat to recognise that it is the middling people that pay all the tax. The very rich don't (never have, never will e.g. the Soviet experiment, our MP's) and the poor don't (haven't got any never had any and in any case derive a lot of their income from the black economy - I know quite a few and they are all making bits of cash here and there - so as someone else says take them out of tax and support the black economy). So the poor bloody middle classes go on funding every one. (And of course benefitting to some degree as well but as well - separate discussion required).

Essentially I am ready to recognise human nature and not try to modify it by tax and spend. My view is that the vast majority of people are more than capable of sorting out their own lives, so just get out of the way and let them. There are a lot more Good Blokes in the world than bad ones.

Oh yes the credit crunch. This is excellent news. The only problem being Brown Darling not letting banks go bust. The Sainted Lady was right - market forces will sort this out. In my professional capacity I have been predicting this for years - I have been notionally short of housing - and our owner occupier clients have generally been kept out of the game. BTL clients are commercial and can make their own investment judgements. I am looking forwrad to a nice 30% decline in house prices which of course would be disinflationary if Brown and not introduced the laughably useless CPI. Expect to see housing re-introduced now that it will contribute to deflation. (and you wonder why I call them Nuliebour?)

So having tried high tax high spend since WW2 and which has broadly not worked (why are there still 'poor' people) why not try low tax low spend?

Lola - You might be "no Tory" but your arguments are more akin to their ideology than any other mainstream party.

I agree it's the "middling" people who pay most tax, but then again it's the middling people who benefit from the state far more than the poorest. They are the ones who go to the doctor when they're ill, who get their kids into the best state schools, who know how to fill in forms to get the best for their families.

The radical changes (scary to horses) that your fellow bloggers applaud so much are certain to lead to higher in-built inflation, high wage settlements, high unemployment and high interest rates.

Even with the boost of North Sea Oil, Thacherism couldn't square lowering income tax with raising indirect taxes and as a result we had all those nasty problems.

Unemployment is still low enough to allow inflation expectations to drive higherwage demands. Again, Thatcher tried to prove that higher unemployment was a reasonable way of controlling inflation, rather than just an unfortunate by-product of getting ourselves out of dirty old-fashioned industries.

Labour decided the opposite,hired 400k people into the public services and decided to use money supply controls as the only weapon (ie interest rates).

Our problems have much more to do with over-expansion over in emerging economies.

Firing 400k in the hope that they'll get work in our lovely new low-debt, high growth happy country isn't going to work, however much you might think they're doing pointless work.

Tax credits are not benefits, they are tax refunds, just targetted with a thought to helping those at the bottom much more than those at the top, rather than at the same rate.

If you abolish these tax refunds, you would have to raise the basic rate threshold by far more than 12k in order to "catch" everyone would would otherwise fall through the marginal net and be worse off.

By the way, I don't confuse Labour with Socialism, which only exists in this country in Premiership football and in the mind of daft fantasists.

Lola - Professional BTL investors are no doubt taking part in the stand-off between large amounts of money being held in order to take advantage of distressed sales. The question is when are the two sides going to meet, and how far back will the bounce in property values come? In the 90s the market took years to recover (in the 30s even longer).

This time it could take years, or months before people start seeing bargains.

"Essentially I am ready to recognise human nature and not try to modify it by tax and spend."

I'd have put it differently, but that's the essential difference between us. I think taxation and spending is a reasonable means to mitigate the damage - it's a more subtle difference than it appears, because it's all a question of degree.

I agree about laying off 400k workers and the cost of benefits to keep them being inflationary. They should move to where the work is. I did. The luxury of paying people to sit about where work isn't is something we just can't afford. I went to wales in the early 90's and it was closed. But there were still loads of peple doing nothing. History is the migration of populations to where the work is or where opportunity is. Why has this stopped? Benefits.

Unemployment in the UK has again become masked under this government. Loads of people on IB and in government non jobs. All these non-productive workers adding no value and paying no tax is inflationary.

The Brown miracle was driven by a huge DIY equity release scam and latent Keynsianism. People spent the capital in their houses. The government taxed and spent the peoples capital (what do you think pensions tax is?). Spending capital takes wealth out of use for productive purposes and increases money supply so inflation rises.

"Lola - You might be "no Tory" but your arguments are more akin to their ideology than any other mainstream party."

Let’s put it the other way around –their philosophies are closer to mine that other parties. UKIP is closer but they’re nutters.

"I agree it's the "middling" people who pay most tax, but then again it's the middling people who benefit from the state far more than the poorest. They are the ones who go to the doctor when they're ill, who get their kids into the best state schools, who know how to fill in forms to get the best for their families."

...and your point is? What you are saying is that some people are not quite as good as others at certain things. As I have said before I am not as clever or as good looking as Harriet Harman. As even the best plastic surgeons would give up at the site of me and I am stuck with my poor brain it is clear that the only ‘fair’ way to deal with this is to lobotomise HH and hit her in the face with a shovel (figuratively speaking you understand). Why not stop all the top down Stalinist provisioning and just give the money to the citizen? You like tax credits why should you not like health care or education credits? And they could be targeted, something which you also seem to favour. This would open up the supply side to all sorts of providers. And before you bang on about profit and private sector my mother trained at Barts in the ‘40’s when it was a ‘private’ hospital structured as a trust of some kind. What’s wrong with that?

"The radical changes (scary to horses) that your fellow bloggers applaud so much are certain to lead to higher in-built inflation, high wage settlements, high unemployment and high interest rates."

No it won’t. It leads to exactly the opposite. It’s a myth that ‘capitalism’ (an inadequate and much traduced term) leads to structural unemployment to provide pools of cheap labour. If governments do only what they are vaguely not too bad at – rule of law, stable currency, defence, rights of private property, umpire not player plus some facilitating role in education and healthcare (both of which are the keys to ‘lifting people out of poverty) the conditions for success will be there. Clearly governments also have a role in defending their citizens from external economic forces.

"Even with the boost of North Sea Oil, Thatcherism couldn't square lowering income tax with raising indirect taxes and as a result we had all those nasty problems. "

Cobblers. Go and look at the graph of inflation from 1947 to 2007 and you will just how well Thatcher/Major did and how much Brown has lied to us as to what he ‘achieved’. Brown inherited low inflation from T/M. In fact it was victory in the cold war that finally nailed structural inflation. The Cold War was the most expensive war in history. More money was spent on that than all the other wars in history combined. Wars = inflation (read JK Galbraith). Post war = deflation. The bond market saw all this coming in 1989 and bond yields declined hugely from then until now. And I am not just talking about switching from direct to indirect tax. I am talking about governments spending shed loads less of our money. And even if the balance is moved to spending so what? As long shelter, food, clothing heat and light are not taxed why would the ‘poor’ suffer? I am not ‘poor’ but they are my biggest costs after those ones.

"Unemployment is still low enough to allow inflation expectations to drive higher wage demands. Again, Thatcher tried to prove that higher unemployment was a reasonable way of controlling inflation, rather than just an unfortunate by-product of getting ourselves out of dirty old-fashioned industries."

You’ve got that the wrong way round. Higher unemployment arose from structural inefficiencies in subsidised industry which Thatcher tackled. It was this unproductive workforce adding no value creating no wealth that was partly the cause of 1970’s inflation. It’s a convenient lefty excuse that she used unemployment to control inflation. The situation today is parallel. Brown has created two useless armies. One of benefit dependent unemployed either on some form of non training scheme or incapacity benefit and vast armies of civil servants and quango sitters doing bugger all value creation. At high wages and high costs. This makes the country and expensive place to do business and crowds out other industries subject to international competition. Their will have to be a reckoning.

"Labour decided the opposite,hired 400k people into the public services and decided to use money supply controls as the only weapon (ie interest rates)."

Nearly exactly. Certainly the hiring bit into useless jobs is correct – see above. And yes they used interest rates, but without understanding. Thatcher also used money supply figures. Brown didn’t. His mandate to the BoE is far too narrow and he held them to stupid CPI. This created huge money supply and cheap credit and rampant house price inflation. DIY Keynsianism on the hoof. It is this profligacy which is now playing out for us all.

"Our problems have much more to do with over-expansion over in emerging economies. "

Oh Gawd. Not the protectionist argument! Look trade is good. Trade makes you wealthy. It is better to business with someone who’s got money and can afford your goods and services than some who has no money and can’t. The richer my customer is the richer I will be.

"Firing 400k in the hope that they'll get work in our lovely new low-debt, high growth happy country isn't going to work, however much you might think they're doing pointless work."

Yes it is.

"Tax credits are not benefits, they are tax refunds, just targetted with a thought to helping those at the bottom much more than those at the top, rather than at the same rate."

Why refund tax that you’ve just taken from someone? Just let them keep the money. They don’t work. And they are benefits.

"If you abolish these tax refunds, you would have to raise the basic rate threshold by far more than 12k in order to "catch" everyone would would otherwise fall through the marginal net and be worse off."

Excellent. Raise the threshold. More people not paying income tax.

"By the way, I don't confuse Labour with Socialism, which only exists in this country in Premiership football and in the mind of daft fantasists."

"Essentially I am ready to recognise human nature and not try to modify it by tax and spend."

I'd have put it differently, but that's the essential difference between us. I think taxation and spending is a reasonable means to mitigate the damage - it's a more subtle difference than it appears, because it's all a question of degree.

June 20, 2008 3:14 PM

...because it never ever bloody well works! That's why. Just stop it. Now.

No. Because of fiscal tightening in 1997-98, then interest rate management by the Bof E.

Ken Clarke spent a lot of energy in 98-98 saying how the fiscal tightening was risking recession and was too stringent, and that he would never have stuck to his own plans, or given independence to the bank.

"driven by a huge DIY equity release scam" - That's better aimed at the Lawson credit boom of the eighties - at least now we have pent up equity, then we had a sprint to the precipice by so-called prudent first time buyers, followed by an immediate crash to the rocks on the day the market died after abolition of double MIRAS.

SmallER govt better, OK?

The loss of public confidence in pension levels has led to far too many people buying to let as a retirement investment. I hope for their sake they hang on to them, because the market will become under-valued very soon.

Thatcher pout far more onto the sick..Tebbit said get on your bike - you are correct, as long as there are jobs somewhere. We have large numbers of vacancies - low unemployment and high (private sector) employment - all putting upward pressure on wage claims.

A bit of a non-sequitor there. I'm all for trade. If you take your eye off inflation, it spreads around the world. Nothing to do with protectionism.

" It’s a convenient lefty excuse that she used unemployment to control inflation"

Complete rubbish. Look up Philips Curve for an analysis of the trade off between inflation expectations, unemployment and wage increases. It's not "lefty" to say she found 4m acceptable, she said it herself through her actions, and I'm sure I remember some-one likle Hopward coming out with it.

The army of useless workers?> For gawd's sake open your euyes. There's an army of private sector workers, the public sector is shrinking. GDP since 2002 is through the roof. It's not a bad record at all, so denying it is weakening your points.

70s inflation was caused by rocketing food prices, followed by oil price rocketing in 73, exacerbated by ignorance in pay negotiation, an unreformed over-unionised workforce, and a lack of finesse in dealing with the above.

YOu're right though, Thatcher didn't solve inflation, the end of the cold war did. (by the way, the best money ever spent in "war", because it led to the end of the iron curtain as Communism went bust trying to keep up)

You stop it now, it's too tedious to correect you any longer (!) Go and have a nice week-end, if your meagre earnings can support one.

"I'd have put it differently, but that's the essential difference between us. I think taxation and spending is a reasonable means to mitigate the damage - it's a more subtle difference than it appears, because it's all a question of degree"

Damage? What bloody "damage"? What damage do people do if just left to run their lives without the State turning up and uttering those nine doom filled words - "I'm from the Government and I'm here to help"

Tax and spend and has never ever worked and never will. Especially and absolutely as either a way of controlling public behaviour or modifying it.

John 5:15 - you relaly do not get it and you have not really looked into it. And whatever the lawson and Clarke did is not necessarily any better than Brown has done. I am with you on 1992 to 1997 Tory fiscal tightening - forced on them by White Wednesday. But the BoE managment of interest rate? Even the Bank doesn't think that. There own people recognise that deflation was imported. Kings recent speech about the NICE decade and the even more recent one about falling living standards acknowledge all this.

Let me explain equiyty release. Brown has spent capital. Pensions Tax. Stamp Duty. North Sea Oli Co special tax. etc etc. Also high personal tax has led citizens to extract equity form their houses to pay for bills and treats. Capital taxes by one remove. Doubling of Council Tax. A tax on capital asset levied on current cash flow. And it goes on and on. Stealth tax after stealth tax taking capital and re-allocating it to spending and Gov't cash flow.

And you've bought into the BtL vs Pensions nonsense. I work in this area and I know that you are talking bollocks. But as I charge for this sort of advice you are not getting it for free. Oh yes - and who was it who taxed these private funds anyway.

For Christ's sake go away and do some reading and really look into this. You may think all you like about my politics, but what I amwriting is transparent if you research it.

What I am getting at is that a whole shed load of problems are not problems at all. They are useful politcal capital that can be used by self serving politicos (of all parties) to keep themeselves in their cushy numbers.